Rolls-Royce shares jump after FTSE 100 giant accelerates buyback

Rolls-Royce shares experienced a significant increase on Thursday as the engineering giant intensified its share buyback programme, buoyed by ongoing demand for its gas and defence engines. The FTSE 100 company's stock price surged over 2.8 per cent in early trading following the announcement of a fresh plan to purchase £1.5 billion of its own shares.

During its third-quarter trading update, Tufan Erginbilgic, the group's CEO, reported that the company was on track to surpass its full-year targets, attributing the progress to "strong operational, strategic, and financial performance" in the second half of the financial year. Erginbilgic emphasized that the company's transformation was creating a Rolls-Royce with a diversified portfolio of high-performing businesses, enhanced resilience, and substantial growth potential.

The aviation division of Rolls-Royce experienced a boost in performance due to the continued demand for its gas-fired engines, which have been supported by the rapid deployment of data centers with high power requirements. The power systems arm of the division reported a 62 per cent year-on-year increase in the nine months leading up to October, and its £8.6 billion order book now stands as the highest in the company's 120-year history.

Approximately 40 per cent of the operating profit generated by the power systems arm is expected to yield double-digit revenue growth and improved margins.

Analyst Alex Pugh from Freetrade noted that data centers are becoming a significant business for Rolls-Royce, as orders for its gas engines nearly tripled, fueled by the need for a dedicated power supply. Erginbilgic stated that the company anticipates "significant value creation," which will enable it to accelerate its plan to return cash to shareholders.

This £1.5 billion share purchase represents the latest development in the group's long-standing strategy of purchasing up to £9 billion of stock. Rolls-Royce's engine manufacturer also benefited from robust demand across its flagship defence and plane divisions, with the latter boasting an order backlog of roughly 2,500 engines, including substantial orders from airlines such as Cathay Pacific, Air China, and Philippine Airlines.

The company's update highlighted another milestone in its transformation journey, overseen by Erginbilgic since the COVID-19 pandemic. The FTSE 100 firm previously had to raise an emergency £5 billion funding package in 2020 to address the financial challenges caused by the collapse in air travel. Additionally, geopolitical trends, such as the West's rearmament drive and the push for reliable green energy, have contributed to Rolls-Royce's growth.

The company is among the most advanced developers of small modular reactors, which policymakers view as a promising solution for reliable and easily deployable nuclear power. Erginbilgic indicated that, given the group's strong progress this year, they would reassess their mid-term targets during the full-year results in February.

Rolls-Royce shares have already climbed more than 15 per cent this year and have increased by over 860 per cent over the past five years.